China's New Environmental Protection Law: A Prerequisite Pharmaceutical Sourcing


By: Owais Ahmad Shah --

22 June, 2015

China's New Environmental Protection Law: A Prerequisite Pharmaceutical Sourcing

China amended its environmental law in April 2014 and took effect on January 1, 2015. Undoubtedly, China has been growing with double digits since years, however, has been struggling to deal with the environmental cost of its growth and has now put in practices to deal with the issue. In accordance to deal with the situation, Chinese government ammended the Environmental Law and brought in into effect this year. Given the seriousness of the situation, the new law deals harshly with the violators and imposes high fines, restriction and suspension of operations and dention of administrative officials. Many cases have come up in the past two to three years where globally renowned companies have been charged of violations and dealt accordingly. For an example, six companies were ordered to pay fines amounting to USD 26 million for discharging waste acid in to the waterways. Given the role of china in the global pharmaceutical industry as the foremost pharmaceutical rawmaterial manufacturer and the relaince of global pharmaceutical industry on China, it is quite expected that impact of the new law would affect the global pharma procurement, especially API procurement. This paper discusses a few case studies of the past years in China were the implementation of the Environmental Protection Law has affeted the overall Industry of a few APIs and hence, the sourcing strategies of the global pharma companies. Furthermore, given this basis and the ongoing changes in the Chinese regualtory environment, this paper tries to antipate the scale of impact in terms of time lag?? for these APIs to get back to usual. Problem Statement China implemented its new Environment protection Law (EPL) on January 1st 2015 in an attempt to harmonize the economic growth with the environmental protection. The EPL is supposed to be the most stringent law in the history of China's development so far, as it outlines strict penalties for violations against environment. To quote a few examples over the past years - China has penalized world's most renowned companies for environmental violations over the past three years. Some of them include the subsidiaries of American Standard, Panasonic, Pepsi, Nestle, and 3M which were mainly charged for discharges of untreated waste water and for unauthorized construction activities. Furthermore, six companies were ordered to pay fines amounting to USD 26 million for discharging waste acid in to the waterways. In this view, the fact that China being one of the largest suppliers of Industrial raw material across the globe, increases the complexity of the global supply chains at least in the short term across different Industries. On the global healthcare front, China ranks number one with 1600 varieties and an annual output of 2.7 million tons (2013) of APIs cutting across different therapeutic areas. Penicillins, vitamins and antipyretic analgesics are among the major categories. Besides these, China also holds a significant share of the APIs like statins, prils and sartans across the globe. Global pharmaceutical Industry's reliance on China has been growing continuously over the past decade and currently it is estimated that China holds about 13 - 15% of the market share in generic APIs in North America and about 45% in the Western European markets. In this context, it is not unexpected that the impact of any misconduct by the Chinese manufacturers would reflect in the supply chains of the global pharma companies at least in a short term, however, could also have a long term effect.


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